CAIRO, Egypt — In a surprise and dramatic reversal, President Hosni Mubarak took a first significant step Saturday toward democratic reform in the world's most populous Arab country, ordering the constitution changed to allow presidential challengers on the ballot this fall.

An open election has long been a demand of the opposition but was repeatedly rejected by the ruling party, with Mubarak only last month dismissing calls for reform as "futile."

The sudden shift was the first sign from the key U.S. ally that it was ready to participate in the democratic evolution in the Middle East, particularly historic elections in Iraq and the Palestinian territories. Mubarak's government has faced increasingly vocal opposition at home and growing friction with the United States over the lack of reform.

"We have moved a mountain," said Rifaat el-Said, leader of the opposition Tagammu party. "This should open the gate for other democratic reforms."

Mubarak likely to stay in powerBut Mubarak's order to parliament declared the amendment must state that any potential candidate be a member of an official political party and win the endorsement of parliament, which is dominated by the president's ruling party.

Most opposition parties and reform activists, therefore, said the initiative, though welcome, did not go far enough and that they feared it was only cosmetic. All acknowledged that Mubarak was likely to stay in power after the September vote.

One party has held a lock on power for more than half a century and every president has been unopposed in elections since the 1952 revolution overthrew the monarchy.

Egypt currently holds presidential referendums every six years in which people vote "yes" or "no" for a single candidate approved by parliament. Mubarak, who came to power in 1981 after the assassination of Anwar Sadat, has stood in four ballots, winning more than 90 percent each time.

Mubarak made the announcement in a nationally televised speech, surprising even some in his inner circle, one source close to the presidency said.

'More freedom and democracy'Touting "freedom and democracy," Mubarak told an audience at Menoufia University, north of Cairo, that he asked parliament and the consultative Shura Council to amend the constitution's Article 76 on presidential elections.

The changes would set a direct vote "giving the chance for political parties to run" and "providing guarantees that allow more than one candidate for the people to choose among them," Mubarak said.

The audience broke into applause, with some shouting, "Long live Mubarak, mentor of freedom and democracy!" Others recited verses of poetry praising the government.

Ayman Nour, who is one of the strongest proponents of an open election and who was arrested by Egyptian police last month, praised Mubarak's announcement in a statement from jail. Nour called it "an important and courageous move" toward "comprehensive constitutional reform," in a statement read by his wife, Gamila Ismael.

Further reforms demandedThe need for parliamentary approval, however, likely would deny participation by the outlawed Muslim Brotherhood, Egypt's largest Islamic group and probably the most powerful rival to Mubarak if an open vote were held. In a statement Saturday, the group -- whose supporters make up the largest opposition bloc in parliament -- demanded further reforms, including greater freedom to form political parties, and the end to Egypt's nearly 25-year-old emergency laws.

The rules would also exclude three well-known political activists who have started a campaign to allow their run for presidency: feminist writer Nawal el-Saadawi, sociologist Saad Eddin Ibrahim, and former opposition member of parliament Mohammed Farid Hassanein.

Mohammed Kamal, a leading member of the ruling party's policy-making committee, said parliament would propose an amendment within two weeks, and a national referendum to approve it would be held within nine weeks.

George Ishaq, spokesman for the Kifaya, or "Enough," movement that has led a series of anti-Mubarak protests since December, said the move was not complete. "Freedom and democracy is a normal request for people," he said. "We need more than this."

Political analyst Mohamed el-Sayed Said criticized Egypt's constitution as "obsolete, replete with gaps and contradictions" and said other articles in the document should also be changed.

Mixed feelingsThe announcement came amid a sharp dispute with the United States over reform -- particularly over the arrest of Nour, head of the opposition Al-Ghad party.

Secretary of State Condoleezza Rice criticized Nour's detention and put off a Mideast visit planned for next week. A senior U.S. official cited Rice's displeasure with the arrest and other Egyptian actions and said Rice wanted to see what steps were taken before going to Cairo.

Egypt, the second largest recipient of U.S. aid, was the first Arab nation to sign a peace treaty with Israel, in 1979, and often mediates in the Israeli-Palestinian peace process.

As the Bush administration presses allies for political change, even reformers in the region are touchy about U.S. interference.

"If this happened by the pressure from the United States, we don't want it," el-Said, the Tagammu leader, said. "In my view, it came from the mobilization of public opinion."

Hisham Kassem, a top official in Nour's al-Ghad Party, said he had mixed feelings about the initiative, which he called mostly cosmetic.

"I reject this as a member of a party whose leader has been arrested," he said. "Ayman Nour is the only credible candidate who could have faced Mubarak."